China steadies market nerves while JB Hi-Fi shareholders see the silver lining in Dick Smith's cloud
While, the nervousness created by yesterday’s sharp share market selloff is likely to linger, moves by Chinese authorities to stabilise their stock market has brought temporary calm to international markets.
Investors are conscious of the fact that problems in China’s market last year had a flow on effect to other stock markets. While China’s market is relatively small and undeveloped compared to stock markets in other major economies there is a tendency to view it as a proxy for wider problems in the management of China’s economy. At the moment though, investors appear to have been placated not only by yesterday’s moves to support China’s market but also by statements that authorities will continue to work towards improving market governance.
JB Hi-Fi shares have gained more than 5% over the past 2 days despite overall market weakness. It’s clear than investors are seeing Dick Smith’s problems as a positive for JB Hi-Fi. Profit margins are likely to improve as discounting pressure from Dick Smith’s aggressive stock clearance sales winds back. In the medium term JB Hi-Fi may also enjoy reduced competitive pressure as Dick Smith either closes stores or shuts down altogether.
Weaker than expected European inflation reinforced market views that Central Bank divergence is a likely theme for markets in 2016. While the Fed will be lifting rates, these inflation figures are likely to leave the ECB with a clear easing bias. This triggered US Dollar buying overnight that saw the Aussie Dollar testing chart support around .713
Frequently Asked Questions about this Article…
Chinese authorities are taking steps to stabilize their stock market by implementing measures to support it and making statements about improving market governance. These actions have temporarily calmed international markets.
Investors often see China's stock market as a proxy for the broader economy because issues in the market can reflect wider problems in economic management. Despite being smaller and less developed than other major markets, China's market movements can influence global investor sentiment.
JB Hi-Fi shares have risen by more than 5% over the past two days as investors view Dick Smith's problems as beneficial for JB Hi-Fi. The reduction in competitive pressure and potential improvement in profit margins are seen as positives for JB Hi-Fi.
JB Hi-Fi may benefit from Dick Smith's challenges through improved profit margins as discounting pressure decreases. Additionally, reduced competitive pressure could occur if Dick Smith closes stores or shuts down entirely.
European inflation has been weaker than expected, reinforcing the market view that Central Bank divergence will be a theme in 2016. This suggests that while the Fed may raise rates, the European Central Bank is likely to maintain an easing bias.
The weaker European inflation figures led to US Dollar buying, which caused the Aussie Dollar to test chart support around .713. This reflects the market's anticipation of Central Bank divergence, with the Fed raising rates and the ECB easing.
Central Bank divergence is significant for investors as it indicates differing monetary policy directions between major economies. For instance, while the US Federal Reserve may raise interest rates, the European Central Bank might continue easing, affecting currency and investment strategies.
There is lingering nervousness in the stock market because of the sharp selloff that occurred recently. Although China's stabilization efforts have brought temporary calm, investors remain cautious about potential underlying issues in China's economic management.
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